How is the amount of deadweight loss that will result from a tax determined
A)by the price elasticity of demand and supply
B)by the number of buyers of the product in the market
C)by the number of suppliers of the product in the market
D)by the percentage of the purchase price that the tax represents

Question

Quizplus · Accepted Answer

The amount of deadweight loss resulting from a tax is primarily determined by the price elasticity of demand and supply. Deadweight loss occurs when a tax causes a reduction in the quantity of goods or services traded, leading to a loss of economic efficiency. The more elastic (responsive) the demand and supply of a product is to changes in price, the higher the deadweight loss caused by a tax on that product. Therefore, option A is the correct answer. The number of buyers or suppliers or the percentage of the purchase price that the tax represents may have some impact on the size of the deadweight loss, but these factors are secondary to the price elasticity of demand and supply.

How Is the Amount of Deadweight Loss That Will Result